China’s soft underbelly- diplomacy, economy

“Even after suffering reverses at Doklam, China continues to blow hot and cold. In fact, there is an upsurge in its penchant to take digs at and offer homilies to India. From the sentencing of self-styled religious don, Gurmeet Ram Rahim Singh, for rape to the death of 100 children at a Gorakhpur hospital, and violent clashes in Darjeeling hills to dip in India’s growth rate, every headline in India has become good fodder for the Chinese thought in a bid to project a better image of the Dragon before home audience and neighbours. Modinomics needs a dose of Chinese advice is the latest refrain. But a close examination of Chinese scene shows that Dragon’s soft underbelly is diplomacy and economy despite building up a mighty military” says the analyst.

Days after Doklam face off ended with egg on its face, China continues to blow hot and cold against India. Reading the Global Times, and People’s Daily, both owned by the Communist State, it is clear that Beijing is undecided on the best course it should adopt in dealing with Delhi. It nevertheless misses no occasion to take digs at Indian democracy, and offer homilies on India economy.

The arrest and sentencing of self-styled religious don, Gurmeet Ram Rahim Singh for rape, the death of 100 children at a Gorakhpur hospital, and violent clashes in Darjeeling hills, which are rocked by a demand for separate province have become good fodder for the Chinese thought, prompting a local headline that read: “From diplomacy to people’s livelihood, India is caught up in disorder”.

Qian Feng, executive director at the Chinese Association for South Asian Studies, has come up with an interesting spin on the causes of chaos in India.

His theory is that India is bound to remain chaotic because of its very history – past and present.

His prognosis, voiced under the heading, “Born of chaos, India lumbers amid turmoil”, makes good reading.

BROADSIDES

“Old India experienced short-term unity but long-term separation, and endured frequent invasions (while) Modern India was born from blood and fire. Chaos has become pervasive; the country seems to be steeped in disorder. Chaos in India will continue to simmer, accompanied once in a while by a cyclical outbreak. It can affect the country’s economic development, social stability and international image,” the learned Chinese professor has theorised grandly.

And assured his Chinese readers that “Considering the history of India since independence, chaos in the country will likely not spiral out of control owing to the flexibility of its political system, tolerance of its society, the patience of its people and improved governance”.

The leader writers at the Global Times see India in no different light either. It does not come as a surprise. In their assessment, which neatly reflects the deep throats of the Communist party system, India is gripped by “security paranoia”.

Shortly after the Chinese public celebrated the National Day holidays, Global Times told its readers that some Indian nationalists are over-estimating India’s strength and rights, and that they are assuming (that) New Delhi can bark orders across the border at Beijing.

What is the provocation for this broadside?

Well, it is the Indian media reports that the Chinese army has resumed road construction in Doklam though 10 kilometers from the location of the last standoff. Also the fact that Indian Defence Minister Nirmala Sitharaman inspected a newly constructed airport during her visit to the Sino-Indian border in Sikkim, Bhutan and China’s Tibet Autonomous Region. The airport is likely to be commissioned in about a month.

NIRMALA’S NAMASTE

The Chinese were not pleased by the Indian minister visiting Indian facilities on the border. They were not prepared for such a visit so soon after a 73-day face off. Also unprepared for her gesture of interaction with the Chinese troops at the border outpost.

From what is said on record, the Chinese military strategists and diplomatic experts were puzzled by Sitharaman’s Namaste. It sent a “signal” to the public that might not erase the first impression (New Delhi’s push to intensify combat readiness against Beijing) but may at least “balance things out”. So settled for the middle ground, which was articulated by Global Times thus: “But her aggressive gesture seems to have been diluted by her friendly interactions with Chinese soldiers in Nathula”.

Yet came the stern warning: “New Delhi cannot mess around. New Delhi needs to exercise restraint”. The edit used the opportunity to lash at Indian society and Indian media while letting China occupy the high moral ground. “Indian society is sensitive and arrogant, and Indian media is amplifying nationalism. India must overcome its paranoia and China has no obligation to indulge India’s capriciousness”.

Why India should observe restraint?

Because like India’s concerns about the Siliguri Corridor’s security, “China is also concerned about the transport route security across the Indian Ocean and the Strait of Malacca, but Beijing has taken no coercive measures to achieve its aims”.

RESTRAINT – HOMILY

Now comes the homily, if one is still needed.

“China is not willing to see that ties with India consume too much energy; India is not a major focus for China’s strategic ambition. Maintaining Sino-Indian friendship is a strategic instinct and a rational choice for China.”

If it is indeed so, why so much fuss, and song- dance. It is because while China’s infrastructure construction in the Doklam region is “logical”, India’s strong reaction is “eccentric”.

Expectedly, China is not pleased by the growing India – US defence cooperation in general and the outcome of Defense Secretary James Mattis’s visit to Delhi in particular. It (India-US defence tie-up) is “much cry and little wool,” says a Chinese egg-head in a long polemical rant.

Yang Siling, a research fellow at Yunnan Academy’s Institute for South Asian Studies, has gone to the town with a lesson in global diplomacy to India that “relations among major powers are not all a zero-sum game or pure cooperation, but in fact a mixture of conflict and collaboration”.

His advice is that India should not read much into headline grabbing anti-China Trump tantrums, more so since the American head of state is going to visit Beijing without a stopover in Delhi in November.

“Although the US does seek to contain China which is also its closest economic partner, the China-US economic relationship is beyond comparison with that of India and the US. So there is naturally both conflict and closeness in political and economic interaction between China and the US. India grew jealous when G2 was invented. US President Donald Trump is expected to visit China in November, which will inevitably trigger India’s speculations about Sino-US relations and make India calculate the real intention of the US toward India”.

HOT DEBATE- INDIA’S EDGE

Yet, a hot debate on the China Internet is whether Indian corporate management’ becomes a secret weapon to overtake China? The basic thrust of the argument is interesting, indeed. It also highlights a fear lurking behind the Bamboo Curtain.

In the Fortune 500, there are 75 foreign CEOs, 10 from India and zero from the Chinese mainland. One-third of engineers in Silicon Valley come from India, according to a study published in 2005, which puts the number of high tech company CEOs from India at seven percent. That ratio should be higher today.

In other words, Indians outnumber Chinese at senior management levels in the top 500 American companies. Does that mean India is more competitive than China?

Most Chinese don’t think so; they argue that India is nowhere China when it comes to global scale operations (of its companies). They like to attribute to the surge in Indian talent in Eldorado to the ability of the US and US companies to attract talent and retain talent with their commitment to an environment of competitiveness.

PRESCRIPTION

So what is their prescription?

“China and India should compete for openness”, says Ding Gang, a senior editor at People’s Daily. He is also a senior fellow with the Chongyang Institute for Financial Studies at Renmin University of China.

“Frankly speaking the openness of Chinese and Indian companies lags far behind any leading global company”, he says without mincing words, and adds that the issue restrains even the most dynamic Chinese and Indian companies. His call is, therefore, for global integration, and openness, notably in recruitment practices.

Good food for thought, more so as Beijing has started saying that New Delhi’s economic policies need a dose of Chinese advice.

The slowing down of the Indian economy in recent weeks appears to offer a perfect opening to sell the new idea, according to some Chinese egg-heads.

One school, as reported by Wang Jiamei in Global Times, argues that India has lessons to learn from China’s three-decade poverty reduction campaign, some scholars like Shi Lancha, a visiting faculty at the Tsinghua University, aver that the Modi administration has become the source of devastating policy distortions, and it can reinvent the Indian growth wheel only if they look at the Chinese model.

CHINESE MODEL

In fact, Shi Lancha makes out a strong case that Chinese economic decision-makers can be role models for their counterparts in New Delhi. Because much like India’s today, China’s journey from a rigidly controlled economy to a vibrant market-based economy has “its share of twists and turns, let alone controversies and unfair criticism” by Western observers.

“For a giant economy like India, only the right ingredients for reform are not enough, it also needs a right recipe to cook all the ingredients together, a recipe that carefully combines and balances macro- and micro-level policy orientations, long- and short-term objectives, and performance and electoral considerations”.

So, asks Shi Lancha, what is holding up Modi’s India. It should, without much ado embrace “China’s guiding principles, which were found and refined by Chinese practitioners from decades of experience: macro-level policies must be stable and carried out smoothly to avoid devastating shocks and distortions; micro-level policies must be adaptive and flexible to capitalize on the dynamics from bottom up; social policies must provide the safe net to shield social members from the consequences of socio-economic transformation”.

It is not clear as yet as any of the Modi economic think tanks picked up the signals emanating from self-anointed advisors perched in Beijing on what is good for India. What is clear that the Modi administration has carried out so far what is no more than an exact antithesis of Chinanomics the likes of Shi Lancha advocate. Modi’s grand demonetization and GST reforms fall under this category. Both policy initiatives were heralded one after another, like a blitzkrieg to wake up India from slumber induced by policy paralysis.

MODINOMICS

Anyhow, it is doubtful whether India will like to follow the road travelled by China, which has created a new set of haves and have nots in addition to the blue-eyed boys of the Proletariat to the dismay of the farmer and jobless youth like. My two CAAPR commentaries, “China’s hard sell- Moody’s worries (May 26, 2017) and Lehman moments for China (Sept 4, 2017) succinctly pinpoint what is wrong with the Dragonomics. And clearly highlight the reality that Chinese economy is no role model.

China may not like to see fructify two developments that are in the process of unfolding under Modinomics. One is the plan to lessen India’s reliance on China in the pharma sector. Almost 80 per cent of pharmaceutical products that range from active pharmaceutical ingredients (API, raw materials) to medical devices used in India these days are imported from China.

The second development relates to a ban on bursting of crackers in the Indian capital, Delhi during the festival of lights in mid-October. The apex court has clamped the ban, prompted by concerns over the high levels of air pollution in the city.

Festival of lights or Diwali as it is known, is a major festival India celebrates in the days before heralding the winter season by bursting crackers. It is also an occasion to make gifts to friends and business associates.

India is home to a broad based cracker industry. Likewise India has a well-developed industry that caters to gift items. Yet, the Chinese have made deep inroads into the two markets over the past two-three decades

Trade chambers, ASSOCHAM, (Associated Chamber of Commerce and Industry of India), puts the total value of Chinese goods sold in India during Diwali – 2016 at around Rs. 6500 crore. Bulk of this money, estimated at Rs 4, 600 crore was splurged on toys, fancy lights, gift items, plastic ware, and decorative goods. The Court –led ban on crackers will not hit the gift items market per se. But it will make the cracker sale to dip and hurt the Chinese pockets. How much hit the Chinese will take is too early to say.

Assocham forecasts a decline of about 40-45 per cent in consumption of Chinese products on this Diwali. Last year also the Chinese products saw a 30 per cent dip in their sales. This Diwali people are said to be preferring Indian products over Chinese goods.

And if this trend continues, it will have a bearing on China-made electronic goods like mobile phones as well. Already, the market has seen a drop of anywhere between 15 and 20 percent in their demand. Other Chinese goods for which India has become a big market, like building hardware, electric fittings, furnishing fabric, office stationary, consumer electronics, and kitchen equipment and appliances are faring no better in the face of heightened competition from locally made South Korean products.

YEAR-END BLUES

Put simply, the year 2017 is not going to end on a sweet note for the Chinese in so far as India is concerned. The Times of India attributes the reason for the rethink on import of Chinese pharmaceuticals in particular to the major risk of severe drug shortage if India’s diplomatic relations with China “worsen”.

Almost three years ago, the National Security Adviser Ajit Doval sounded a warning against India’s over-dependence on China for pharma products. He cautioned how tension between the two countries can cause a crisis in the public health system of India.

This is not to say India is going to shut the doors on Chinese pharma. “We do not want the trade to cease between the two countries”, Drugs Controller General of India (DCGI) G N Singh was quoted as saying in the daily. He went on to add: “We want to create a level playing field for Indian companies and also ensure good quality products for Indian patients.

As of now the landed price of API from China is 15-20% less than its production cost in India, making it more viable for Indian companies to import. There is no level playing field for Indian pharma companies in China. Their sales are subjected to a much higher fees vis-a-vis local products.

This reality check brings up front a reality that Dragon’s soft underbelly is diplomacy and economy despite building up a mighty military.

Writing in the South China Morning Post (Oct 14, 2017), Cary Huang observes: “China’s high-profile military forays into faraway lands and waters have not only prompted much analysis of China’s growing military clout. They have also triggered widespread fear regarding its military ambitions at a time Beijing has been at pains to convince the world of its intentions of a peaceful rise. Apparently, when it comes to military diplomacy, China still has some homework to do”.

Sale of Chinese goods may decline by 40-45% this Diwali: Survey By Jaideep Shenoy in The Times of India, Oct 9, 2017 https://timesofindia.indiatimes.com/business/india-business/make-in-india-could-see-45-drop-in-sale-of-chinese-goods-this-diwali-assocham/articleshow/61004810.cms

Sale of Chinese goods may drop 45% this Diwali; India to Celebrate a Make in India Diwali: ASSOCHAM http://www.assocham.org/newsdetail.php?id=6525